Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) Q4 2022 Earnings Call Transcript March 3, 2023

Operator: Good afternoon, and welcome to the Lexicon Pharmaceuticals Fourth Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Carrie Siragusa. Please go ahead.

Carrie Siragusa: Thank you, Gary. Good afternoon, and welcome to the Lexicon Pharmaceuticals fourth quarter 2022 financial results conference call. Joining me today are Lonnel Coats, Lexicon's Chief Executive Officer; Jeff Wade, Lexicon's President and Chief Financial Officer; and Dr. Craig Granowitz, Lexicon's Senior Vice President and Chief Medical Officer. Earlier this afternoon, Lexicon issued a press release announcing our financial results for the fourth quarter of 2022, which is available on our website at www.lexpharma.com and through our SEC filings. A webcast of this call, along with the slide presentation is available on our website. During this call, we will review the information provided in the release, provide a corporate update and then use the remainder of our time to answer your questions.

Before we begin, let me remind you that we will be making forward-looking statements, including statements relating to the safety, efficacy, regulatory status and therapeutic and commercial potential of sotagliflozin, LX9211 and other drug candidates. These statements may include characterizations of the expected timing and results of clinical trials of sotagliflozin, LX9211 and our other drug candidates and the regulatory status and market opportunity for those programs. This call may also contain forward-looking statements relating to our growth and future operating results, discovery and development of our drug candidates, launch and commercialization plans for any approved products, strategic alliances and intellectual property as well as other matters that are not historical facts or information.

Various risks may cause our actual results to differ materially from those expressed or implied in such forward-looking statements. These risks include uncertainties related to our NDA for sotagliflozin in heart failure and our discussions with the FDA regarding sotagliflozin relating to heart failure and type 1 diabetes; the success of our commercialization efforts with respect to any approved products; the timing and results of clinical trials and preclinical studies of sotagliflozin, LX9211, and our other drug candidates; our dependence upon strategic alliances and other third-party relationships; our ability to obtain patent protection for our discoveries, limitations imposed by patents owned or controlled by third parties; and the requirements of substantial funding to conduct our planned research, development and commercialization activities.

For a listed description of the risks and uncertainties that we face, please see the reports we have filed with the Securities and Exchange Commission. I would now like to turn the call over to Lonnel Coats.

Lonnel Coats: Thank you, Carrie. Good afternoon, everyone, and thank you for joining us on the call. Fourth quarter 2022 was another active period for both our lead programs, sotagliflozin, our dual SGLT1 and 2 inhibitor that we're developing for heart failure and LX9211, our AAK1 inhibitor that we're developing for neuropathic pain. Starting with our LX9211 program for neuropathic pain. In June of last year, we have previously announced positive top line results from our Phase 2 proof-of-concept study in diabetic peripheral neuropathic pain. The final data demonstrated further significant benefits in both burning pain and on pain interference with sleep. In December, we announced top line results from a second Phase 2 proof-of-concept study of LX9211 in postherpetic neuralgia.

These results demonstrated clear evidence of effect, further supporting the advancement and another indication within neuropathic pain. These results showed a consistent and statistically significant reduction in average daily pain score, or ADPS, compared to placebo throughout the dosing period as we have shared, not reaching statistical significance on the primary endpoint measured at week six. One of the more exciting aspects of these results is the remarkable consistency seen across both Phase 2 studies, and we will share more today about the development plans already underway to move LX9211 forward to late-stage development. We continue to believe LX9211 represents an innovative approach to treating neuropathic pain and if approved, could provide a significant opportunity to improve the treatment landscape for the benefit of patients.

Now turning to sotagliflozin. I'm pleased to say we had our late cycle review meeting with the FDA earlier this week for our NDA for the treatment of heart failure. The agency indicated that there were no substantial review issues and again confirmed that it has no plans to hold an advisory committee meeting. Therefore, we believe everything remains on track for our PDUFA target date on May 27, 2023. We look forward to continuing to work with the FDA throughout the remainder of the review period and are planning to commercially launch sotagliflozin in the U.S. in the first half of this year, preparations for which are already underway. We continue to believe the unique data from our SOLOIST Worsening Heart Failure trial and patients recently hospitalized for heart failure may provide a point of clinical differentiation enabling a strong entry into the heart failure market.

As a reminder, this past November, new data from the SOLOIST Worsening Heart Failure trial were presented at the American Heart Association Scientific Sessions demonstrating sotagliflozin significant effects on reducing cardiovascular mortality and the risk of hospital readmissions at 30 and 90 days following discharge after initial event. This was indeed a significant finding that we believe could provide tremendous benefits to patients, physicians, hospitals and payers, and help differentiate sotagliflozin within the current heart failure treatment paradigm. I'm going to turn the call now over to Jeff, who will review the sotagliflozin program and the status of our commercial launch preparations. Jeff?

Jeff Wade: Thanks, Lonnel. There are 6.7 million people in the United States living with heart failure, a number that is expected to increase to 8 million by 2030. Heart failure is the leading cause of hospitalizations for Americans over 65 with more than 1 million hospitalizations for heart failure annually. Patients who are hospitalized for heart failure are highly likely to return with about 25% of patients being readmitted to the hospital within 30 days of discharge and about 65% within a year. Hospital readmissions are burdensome for both patients and the health care system. Annual costs from heart failure are expected to increase to nearly $70 billion by 2030, with 80% of those costs due to hospitalizations. There is a substantial unmet need for better treatment options for patients, and as these data make clear a strong incentive for providers, hospitals and payers to identify new approaches to reduce hospital readmissions.

Aligned with that incentive, our data from the Journal of the American College of Cardiology, revealing a compelling reason to prioritize when patients are started on therapy in order to increase the likelihood that patients receive appropriate treatment following a hospitalization for heart failure. In particular, the data suggests that starting patients on therapy at the time of hospital discharge, results in a significantly higher percentage of patients receiving appropriate treatment at 60 to 90 days and at 12 months follow-up. Heart failure is a very large multibillion-dollar market that is poised for substantial growth. Along with increasing disease prevalence, this anticipated growth is being driven by new guidelines recently issued by major cardiology societies in the United States and elsewhere, recommending the use of SGLT inhibitors as an important element in the standard of care for treating heart failure.

Currently, of those 1.3 million hospitalizations a year due to heart failure, data suggest that fewer than 10% of patients are discharged with a prescription for an SGLT inhibitor. This provides an exceptional opportunity for sotagliflozin, given its unique data showing its significant impact on that transition of care patient population. I will now turn the call over to Craig to provide a reminder on the unique data presented in November by Dr. Bertram Pitt at the American Heart Association Scientific Sessions, assessing sotagliflozin's effects in reducing cardiovascular mortality and the risk of hospital readmissions at 30 and 90 days following discharge from a heart failure hospitalization.

Craig Granowitz: Thank you, Jeff. As you can see, a group of patients from the SOLOIST study, while improving in their clinical journey, remain at risk for future heart failure events, as Jeff has shown in the prior slides. As a reminder, the SOLOIST-Worsening Heart Failure trial enrolled approximately 1,200 patients with heart failure who are either hospitalized or recently hospitalized and were transitioning out of the hospital. Double-blind randomized treatment began either in the hospital or within three days following hospital discharge. There are approximately 50% of patients in each of those two categories. The primary endpoint for the trial was achieved with a statistically significant and clinically meaningful reduction of 33% in the composite of total cardiovascular death, hospitalization for heart failure and urgent heart failure visits with the need to treat only four patients for one year to avoid one endpoint event, finding, which is unsurpassed within the SGLT inhibitor class.

Photo by Raimond Klavins on Unsplash

The objective of Dr. Pitt's post hoc analysis was to evaluate the efficacy of sotagliflozin versus placebo at reducing hospital readmissions and mortality within 30 and 90 days post discharge from a heart failure hospitalization among those patients who began treatment on or before the date of discharge. As a reminder, there were no differences between the two groups for baseline characteristics or the primary endpoint. Presented here are the results for cardiovascular death and heart failure-related events for 30 and 90 days post discharge. You can see the sotagliflozin arm in the blue color begins to separate from the placebo arm in red very early on and showed that treatment with sotagliflozin resulted in a significant relative risk reduction versus placebo of approximately 50% for readmission for non-fatal heart failure events and for the composite of cardiovascular death and readmission for heart failure at both 30 and 90 days following hospital discharge.

The authors concluded that sotagliflozin significantly reduces the 30 and 90-day rates of cardiovascular mortality and heart failure-related events as well as total mortality by 90 days post discharge when administered prior to hospital discharge. The authors state that these findings are unique and underscore the benefits of early initiation of evidence-based heart failure therapy. Sotagliflozin is the first compound to demonstrate a reduction on both mortality and heart failure events or a treatment initiated during a heart failure hospitalization. We certainly agree with the authors that these results have important implications for patient quality of life and health care costs. And as Jeff has already mentioned, expect these data to be key points of differentiation in the marketplace should sotagliflozin achieve regulatory approval.

We also wanted to highlight four additional upcoming data releases at the American College of Cardiology's 72nd Annual Scientific Sessions being held this coming weekend in New Orleans. This includes an important paper on the time to clinical benefit of sotagliflozin in heart failure patients, transitioning out of the hospital in the SOLOIST-Worsening Heart Failure study by Dr. Verma, which concluded dual inhibition of SGLT2 and SGLT1 with sotagliflozin leads to an early and sustained reduction in outcomes in patients with heart failure that is apparent by 27 days post randomization. These data support and further extend the results of the AHA findings that we highlighted above for this high-cost and high-risk population. This is in addition to three additional poster presentations during the weekend at ACC, which you can see the dates and times for each in the slide.

I'll now turn the call back over to Jeff to share more on our commercial launch preparations.

Jeff Wade: Thank you, Craig. As Lonnel referenced earlier today, our commercial launch preparations for sotagliflozin have been well underway for the better part of 2022. The majority of the infrastructure to support a commercial launch in heart failure in the U.S. in the first half of 2023 is currently in place, including the full payer and medical teams who have been having appropriate preapproval information exchanges with key stakeholders since late last year. In addition, we brought on our sales leadership team towards the end of last year, and we are currently in the process of interviewing for the sales representative positions that we plan to bring on board closer to the anticipated PDUFA date in May. We feel confident that we will have the right talent and resources to be ready for a very successful commercial launch following regulatory approval.

We will now turn briefly to our LX9211 program. LX9211 is a potent, highly selective small molecule inhibitor of a novel target, adapter-associated kinase 1 or AAK1. In a number of relevant animal models of neuropathic pain, LX9211 demonstrated consistent, significant reductions in pain scores, even when compared to positive controls such as gabapentin. LX9211 achieves high levels of drug in the CNS, and importantly, the mechanism of action of LX9211 is independent of the opioid pathway. In Phase I studies, LX9211 was shown to be well tolerated with a pharmacokinetic profile supportive of once-daily dosing. Lexicon has been granted fast track designation by the FDA and for diabetic peripheral neuropathic pain. From a market perspective, the neuropathic pain market is expected to grow by more than 13% worldwide between €“ on an annual basis between 2020 and 2026, and is projected to be worth more than $13.2 billion.

Currently, available therapies are limited by a lack of efficacy, side effects, and potential for abuse. As a result, there is a great opportunity for new and innovative treatments such as LX9211 to enter this growing market with great unmet need. I will now turn the call back to Craig to briefly review the key results from our Phase 2 studies in two distinct types of neuropathic pain that read out last year.

Craig Granowitz: Thank you, Jeff. As we discussed during our last quarterly call, the primary endpoint of the RELIEF-DPN-1 study was achieved with a statistically significant reduction in the average daily pain score or ADPS, at week six compared to placebo in the low-dose arm. There was an absolute reduction in ADPS from baseline of 1.39 points with a p-value of 0.007 compared to placebo. The high-dose arm achieved a reduction from baseline of 1.27 points with a p-value of 0.03 compared to placebo, narrowly missing the significant threshold of 0.028 but showing consistent effects. As announced at the 16th Annual Pain Therapeutics Summit in Washington, D.C. this past November, not only did LX9211 achieved the primary objective of the study by reducing patients' average daily pain score, but the final data demonstrated significant positive effects of LX9211 on measures that are meaningful to patients suffering from diabetic peripheral neuropathic pain, including burning pain and sleep interference, which have a direct impact on patient quality of life, as is shown in the attached slides.

We also noted during the blinded five-week placebo runoff period in the study, there was a gradual tapering of efficacy in both treatment arms with no evidence of rebound pain or withdrawal symptoms. There were no observed differences in treatment-emergent adverse events between the treatment and placebo arms during the runoff period and no drug-related serious adverse events or deaths were reported in the trial. Now turning to the results of our second Phase 2 proof-of-concept study in postherpetic neuralgia, RELIEF-PHN-1. As we announced in December during our call, reporting the top-line results from the trial, LX9211 achieved a reduction in average daily pain score of 2.42 points from baseline at week six and compared to a reduction of 1.62 points in the placebo arm with a placebo-adjusted difference of 0.8 points and a p-value of $0.12.

Although these results did not achieve significance on the primary endpoint of the study, overall study results demonstrated clear evidence of effect and achieved our goal for this small 79-patient study that further support the further development of LX9211 in another neuropathic pain condition. As Lonnel mentioned, when reviewing the data of both the RELIEF-DPN-1, and RELIEF-PHN-1 studies, we noted a remarkable consistency across the study results. When placing the graphs from the two studies side-by-side, the separation from placebo and mean change from baseline create similarly shaped curves. In addition to the timing and the magnitude of clinical benefit, we observed an adverse event profile that was consistent across both trials. To summarize, treatment-emergent adverse events were generally mild-to-moderate.

There were no drug-related serious adverse events in either study. Finally, dizziness was the most commonly reported treatment-emergent adverse event. What we did not observe in the safety profile of LX9211 were some of the limitations of current therapies for neuropathic pain, such as peripheral edema, increased appetite, blurred vision or dry mouth. The adverse events tended to occur early in treatment, suggesting the possibility that might be associated with the loading dose. And given the rapid onset of effect on ADPS, offering potential for further optimizing dosing for both tolerability and efficacy effects that we are currently exploring. In conclusion, we have now completed two Phase 2 proof-of-concept studies of LX9211 that support AAK1 inhibition as a potential new mechanism of action for treating neuropathic pain.

We believe that LX9211 has the potential to overcome many of the shortcomings of current therapies and could become a welcome new innovation for those suffering from neuropathic pain on a daily basis. This is a large and growing market with high unmet medical need. As a result, we are pursuing the rapid advancement of LX9211 into Phase 3 development for the treatment of neuropathic pain. We are continuing the work to identify and optimize the proper dosing regimens, and we are preparing to engage in the dialogue with the FDA in the first half of this year on how best to advance the program into Phase 3 development as quickly and efficiently as possible. As we have shared previously, we believe this program would benefit from a partnership that offers the right strategic fit for our organization and stakeholders, and we are engaged in discussions in this regard, which we believe will yield a positive outcome.

In the meantime, we are proceeding with our plans for further development without cause. I'd like to now turn the call back to Jeff to take us through the financial results for the fourth quarter of 2022.

Jeff Wade: Thank you, Craig. I will provide some key aspects of our fourth quarter 2022 financial results. More financial details can be found in the press release that we issued earlier today and our Form 10-K that will be filed shortly with the SEC. We ended the year with $138.4 million in cash and investments. We believe that our existing capital resources provide us with the right level of funding to support continued commercial preparations, make appropriate investments in research and clinical development and move towards a potential LX9211 partnership. Our loan facility with Oxford Finance, which provides up to $100 million in additional borrowing capacity, gives us substantial financial flexibility as we prepare to embark upon the expected launch of sotagliflozin in the first half of this year.

We anticipate that our existing cash and investments together with capacity under the loan facility will provide us with sufficient resources to manage our operations well into the anticipated launch of sotagliflozin into the market, without taking into account any proceeds from or costs assumed by a partner in any partnership that we may establish for LX9211. Now turning to our financial results for the fourth quarter. As indicated in our press release this afternoon, we had minimal revenues for the fourth quarters of both 2022 and 2021. Research and development expenses for the fourth quarter of 2022 decreased to $14 million from $16.5 million for the corresponding period in 2021 and for the full year decreased to $52.8 million from $55 million in 2021, primarily due to lower professional and consulting fees in 2022 related to preparation for submission of our application for regulatory approval to market sotagliflozin for heart failure.

Selling, general and administrative expenses for the fourth quarter of 2022 increased to $16.3 million from $8.8 million for the corresponding period in 2021 and for the full year, increased to $48.1 million from $32.3 million in 2021, primarily due to increases in salaries and benefits, professional and consulting costs and marketing costs relating to preparations for the commercial launch of sotagliflozin in heart failure. In total, net loss for the fourth quarter of 2022 was $30.5 million or $0.16 per share as compared to a net loss of $25.6 million or $0.17 per share in the corresponding period of 2021. Our net loss for the fourth quarters of 2022 and 2021 included noncash stock-based compensation expense of $3.3 million and $2.2 million, respectively.

Net loss for the full year 2022 was $101.9 million or $0.62 per share as compared to a net loss of $87.8 million or $0.60 per share in 2021. For the full years of 2022 and 2021, net loss included noncash stock-based compensation expense of $11.5 million and $10.6 million, respectively. I would like to pause now and ask the operator to open up the call to take your questions.

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